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Senior Business Reporter
FIRST Mutual Properties has expressed concern over the rising defaults on lease obligations and construction cost inflation, a development that warrants close monitoring given its potentially huge impact on the company’s strategy.
In a statement accompanying audited financial results for the year ended December 31, 2022, board chairman, Mr Elisha Moyo described rising defaults on lease obligations and construction cost inflation as “twin evils”.
“The industry grappled with “twin evils” of rising defaults on lease obligations and construction cost inflation. Management continues to closely manage these risks given their potentially huge impact on the company’s strategy,” he noted.
Mr Moyo said the property market fundamentals were mixed during the period under review.
The leasing market for commercial space was the most active segment with buoyant activity in the retail and industrial sectors.
However, the office segment was subdued because of the need by people to re-adjust their newly-formed working habits of “working from home” to “back to the office”.
“The CBD office experienced the highest vacancy rates forcing most owners to remodel their properties to cater for the Small and Medium Enterprises (SMEs) sector.
“Further, the retail, industrial and residential sectors enjoyed relatively huge activity during the year. In contrast, commercial property transactions were low due to huge investment requirements,” he said.
Mr Moyo said the limited commercial property developments seen during the period under review have largely been self-funded and are being used as a hedge against currency and inflation risks as well as possible future rental increases.
The Group’s inflation-adjusted Net Property Income after administration expenses was $140,5 million.
In historical terms, revenue grew from $475,4 million to $2,1 billion largely due to the repricing of rentals and relatively good occupancy that stood at 85,5 percent.
Foreign and local currency rental mix was 70 percent to 30 percent at the end of the year.
“This has enabled the company to preserve value from foreign currency and inflation risks while creating capacity to finance its on-going capital and growth expenditure programmes from internal resources.
“Collections decreased to 72 percent from 82 percent in the prior year, particularly on the back of the country’s contractionary policies.”
Mr Moyo said the listed property management and development firm will strive to maintain buildings in lettable and safe conditions.
To that end, a total of $528 million was deployed towards maintenance of buildings.
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